Asian markets start to claw back losses as US-NKorea tensions ease

HONG KONG: Most Asian markets started clawing back losses Monday as spiralling tensions over North Korea showed tentative signs of easing and safe haven assets lost momentum.

Fears of a catastrophic confrontation between Washington and Pyongyang were calmed when CIA director Mike Pompeo said Sunday there was “nothing imminent” in the escalating stand-off.

Regional equities were also boosted by a positive lead from Wall Street on Friday, after investors waded back into the market following a three-day sell-off.

Hong Kong rose in afternoon trade Monday after slumping two percent Friday, while Shanghai ended the day higher despite data showing Chinese industrial production slowed sharply in July as government efforts to rein in debt weighed on demand.

However, Tokyo closed one percent down as traders returned from a three-day holiday weekend to play catch-up after Asian and European shares had dropped Friday, with the Nikkei finishing at its lowest level in more than three months.

Investors largely shrugged off official data showing Japan’s economy grew by a faster-than-expected one percent in the three months to June, as the accelerating world number three economy marked its longest economic expansion in more than a decade.

“What we’re seeing today is relief at the (geopolitical) situation not deteriorating over the weekend, something traders were clearly wary of towards the end of last week,” said Oanda analyst Craig Erlam.

European stocks moved higher at the start of trading on Monday with London, Paris and Frankfurt all in positive territory.

As markets started recovering, the dollar rose against the Japanese currency to about 109.5 yen in afternoon trade — although still off 109.99 yen in Tokyo on Thursday — while gold halted its advance after jumping 2.4 percent last week.

“We’re seeing a small unwinding of … risk aversion trades, with gold trading slightly lower and the yen and Swiss franc off against the dollar, pound and euro,” Erlam added.

Indices could reap the benefit of investors returning following losses worldwide last week, triggered after President Donald Trump threatened to unleash “fire and fury” on North Korea, and Pyongyang countered by announcing plans to test-launch missiles toward Guam.

‘Not out of the woods yet’

“There is a still a ‘buy the dips’ mentality running through financial markets, assisted by global growth in a good spot (while) global corporate earnings have been strong,” said Chris Weston, chief market strategist at IG Markets.

Seoul, which endured a torrid time last week with stocks losing 3.2 percent, finally broke its four-day losing streak, while Sydney also saw gains.

However, analysts cautioned that with joint South Korean-US military exercises scheduled and North Korea celebrating “Liberation Day” Tuesday, volatility could return to markets.

“We are not out of the woods yet and the situation in North Korea will remain front and centre,” said Weston.
Wall Street had called a halt to the global slump on Friday, with analysts saying the Dow was boosted by weaker than expected consumer price inflation (CPI) figures, seen as reducing pressure on the Fed for an early rate rise.

“Wall Street found some succour in the weaker than expected CPI last Friday. And that seemed to outweigh the increased rhetorical fight between President Trump and Pyongyang,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.

Crude prices were broadly stable in Asia Monday as the market continued to weigh rising global supply against output curbs from OPEC members and other leading producers.

“Oil seems to have found an equilibrium point and as long as we continue to see US inventories decline, it may be content to hold around here,” said Ric Spooner, an analyst at CMC Markets in Sydney.